How COVID19 Is Affecting Your Mortgage Rates

Dated: 03/18/2020

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Let's fast-forward through how we're taking our, your, and the public's health seriously (extra sanitation measures, working from home, having virtual conferences and house tours) and get to the points you're really interested in: what the Fed cutting its benchmark interest rate to 0% means for your mortgage rates and the very real benefits of social distancing. 

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Understand Mortgage Rates in 3 Steps 

1. The Fed Slashes Interest Rates to Counter COVID-19's Economic EffectsOn Sunday, March 15th, the Federal Reserve cut its benchmark interest rate to a range of 0-0.25% (after cutting it to 1-1.25% two weeks ago). The Fed also announced that it would purchase at least $700B in mortgage-related bonds.Starting Monday, March 16th, banks will also be allowed to borrow money at a rate of 0.25% from the central bank for up to 90 days.The goal of these actions is to alleviate adverse effects of COVID-19 on the economy by making borrowing costs as low as possible.In all, there's uncertainty in the air.What is certain is that these changes (indirectly) affect mortgage rates. 

2. How Mortgage Rates are AffectedMortgage rates are indirectly tied to Fed fund rates. So, when the Fed announced their federal fund rate has been cut to 0-0.25%, that does NOT mean that mortgage rates are now 0-0.25%."How ARM, HELOC mortgage borrowers benefit from second Fed rate cut"This means that investors are more likely to move their focus to "safer" assets, like the 10-year Treasury note, which usually moves with 30-year fixed mortgage rates.So, we can expect mortgage rates to fall further. How are lenders reacting? 

3. How Lenders are Affected & What They're DoingWe love our lenders. They're the ones who know this situation best. This is what Adam Funck of Garden State Home Loans shared with us:"As most people know, a couple weeks ago, rates dropped to the lowest since 2008 and there was a surge of refinance business during a very busy spring purchase market. This overloaded the Mortgage Investors & Warehouse Lenders; they couldn’t keep up. To slow this flow of business, mortgage companies took one of two paths: they delayed settlements and told clients to prepare for 60-90 day closings, or they raised their interest rates to make themselves less competitive.Again, this was all to slow the flow of business. So despite the fact that market indicators indicate that rates should be at an all-time low, rates have actually been rising fairly steadily. As the industry catches up and markets stabilize, we expect rates to drop again significantly to where the market indicators show they should be, but in the meantime it’s causing much confusion.Our recommendation: get the mortgage process started and don’t let the rates or market volatility scare you. Let your mortgage lender manage the transaction and they’ll lock in your interest rate based upon the most opportune time to save you money. It’s a great time to buy or refinance and you should take advantage of the weak markets and low rates." 


 Well said, Adam.If you have any mortgage-related questions, Adam would be more than happy to talk with you. Email him at afunck@gardenstateloans.com

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Justin Bresson

Justin was born and raised on the Main Line in Bala Cynwyd, just outside of Philadelphia. He graduated from the University of Delaware with a Bachelor of Science in Marketing. After graduation, Justin....

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